March 2, 2018

State system, key leaders connect during GAC

Meetings and discussions with members of Congress and their staffs, officials from federal regulatory agencies, national and state credit union trade groups, and key players affecting the state credit union system were highlights of this week’s activities by NASCUS at the biggest credit union meeting of the year, the Governmental Affairs Conference (GAC) of the Credit Union National Association (CUNA).

“The state system took every opportunity possible during the week’s events and conferences to drive home our key messages,” said NASCUS President and CEO Lucy Ito. “Among them: state regulators deserve respect from their federal counterparts; state representation is needed on the NCUA Board; credit unions need a modernized capital system (including additional types of capital); executive pay at non-profit credit unions merits the same tax exemptions as for-profit companies; and federal clarity is past due for credit union service to legal marijuana businesses.”

The NASCUS agenda included meetings with leaders of the American Association of Credit Union Leagues (AACUL), the National Association of Credit Union Service Organizations (NACUSO); CUNA Mutual Group; and the National Association of Federally-insured Credit Unions (NAFCU).

NASCUS leadership also sat down with NCUA Board Chairman J. Mark McWatters to discuss current, common issues facing the state system and the federal regulator, as well as Treasury Department representatives. In addition, NASCUS leaders and staff conferred selected members of Congress and their staffs to talk over the state system agenda, including topics related to implications of the tax reform bill and restructuring of the NCUA Board. Hill offices visited included: Sen. Orrin Hatch (R-Utah); Rep. Patrick Meehan (R-Pa.); Rep. Diane Black (R-Tenn.); and Rep. Frank Lucas (R-Okla.)

DISTRIBUTION OF NEARLY $736 MILLION ON TARGET – A ‘WISE DECISION’

Distribution of nearly $736 million in excess funds from the NCUSIF to credit unions is being calculated now – through preforming and validating of the data necessary – with an anticipated payout on target for the third quarter of the year, NCUA Board Chairman J. Mark McWatters signaled to a credit union gathering this week. He also indicated that more distributions may be coming.

Later, NCUA Board Member Rick Metsger defended the distribution, comparing it to premiums that large banks may have to pay this year to reach the required equity level for their insurance fund.

Both agency leaders spoke at the CUNA GAC this week.

In the footnotes of the speech he delivered to the conference McWatters wrote that checks for the distribution (resulting from the closing of the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) and subsequent incorporation into the insurance fund) would be issued in the third quarter. He added that NCUA “expects to notify credit unions later this year of their respective distribution amount.”

In other footnotes to his speech, McWatters summarized the impact of the $736 million distribution from the insurance fund. “In a nutshell, the early closing of the Stabilization Fund transformed a projected premium assessment into an anticipated distribution while materially increasing the necessary and appropriate GAAP reserves for potential future Share Insurance Fund losses and maintaining a normal operating level necessary to protect the Share Insurance Fund’s equity ratio from falling below 1.20 percent in a moderate recession as determined by stress test analysis conducted pursuant to Federal Reserve methodology,” McWatters wrote.

In his spoken remarks, the NCUA Chairman indicated that the distribution planned for later this year may not be the only one ahead for credit unions. “As the risk to the Share Insurance Fund dissipates from the retirement of the NCUA Guaranteed Notes (NGN Notes), we anticipate the payment of further distributions.”

Later that same day, Metsger told the 5,000 conference attendees that, while credit unions are receiving the millions in distribution from the insurance fund’s excess, “banks will be paying premiums to build up their deposit insurance fund, and, to the best of my knowledge, banks have never received a distribution from their fund.”

Metsger called the decision by the NCUA Board to distribute the funds “a wise one.” “Without such action, the Share Insurance Fund would have fallen to 1.18% at year’s end, below the statutory minimum to be considered adequately capitalized as required by law,” Metsger said. “Had we followed that path, credit unions would be facing premium assessments of $1.3 billion just to return the fund’s equity ratio back to the original 1.30% normal operating level. Instead, the checks will be flowing the other way.”

CHAIRMAN CITES BIPARTISANSHIP, RESTRUCTURING ACHIEVEMENTS

In other comments to the credit union conference this week, McWatters:

Cited accomplishments achieved with “bipartisanship” between himself (a Republican) and fellow Board Member Rick Metsger (a Democrat), including the distribution from the insurance fund and closing of the Stabilization Fund;

Noted the agency’s restructuring from five regions into three, expected by next January, and “eliminating 80% of the agency’s leased space;”

Outlined the agency’s participation in President Donald Trump’s Executive Order 13777, directing agencies to set up task forces to identify outdated and unnecessary rules and regulations;

Pointed to the agency’s public briefing on its proposed budget, and the agency’s requests for comments on its budget, plans for improving the Call Report, and methods and procedures for electronic data collection all as examples of the agency being “transparent and accountable,” and working to craft “tailored and targeted rules and guidance.”

REGULATORS COUNSELED TO EASE BURDEN, ASSESS MORTGAGE DISCLOSURES

The federal consumer protection agency and the federal financial institution regulators are the subject of 10 recommendations – including two for NCUA -- made by the Government Accountability Office (GAO), including assessing effectiveness of mortgage disclosure guidance and reporting rationales for their actions.

In a report this week, GAO made the recommendations for CFPB and the regulators – the Federal Reserve, the FDIC, the OCC, and NCUA. Specifically, GAO recommended that CFPB should “assess the effectiveness of guidance on mortgage disclosure regulations and publicly issue its plans for the scope and timing of its regulation reviews and coordinate these with the other regulators' review process.”

For the financial institution regulators, GAO recommended that they conduct comprehensive regulatory burden reviews. As part of those, the GAO said the regulators should develop plans to report “quantitative rationales for their actions and addressing the cumulative burden of regulations.”

GAO said the five agencies generally agreed with the recommendation in written comments.

The congressional oversight agency said it made the recommendations after conducting interviews and focus groups with individuals from more than 60 community banks and credit unions. In the sessions, GAO said, the financial institution representatives “indicated regulations for reporting mortgage characteristics, reviewing transactions for potentially illicit activity, and disclosing mortgage terms and costs to consumers were the most burdensome.”

The GAO said financial institution representatives called the regulations time-consuming and costly to comply with, in part because the requirements were complex, required individual reports that had to be reviewed for accuracy, or mandated actions within specific timeframes.

Among the details of the two recommendations each to CFPB and NCUA are:

CFPB: (1) should assess the effectiveness of TRID guidance to determine the extent to which TRID’s requirements are accurately understood and take steps to address any issues as necessary; (2) should issue public information on its plans for reviewing regulations applicable to banks and credit unions, including information describing the scope of regulations, the timing and frequency of the reviews, and the extent to which the reviews will be coordinated with the federal depository institution regulators as part of their periodic reviews under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).

NCUA: (1) should, as part of the EGRPRA process, develop plans for their regulatory analyses describing how they will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process; (2) should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities to streamline bodies of regulation.

SENATE REG RELIEF BILL EXPECTED ON FLOOR

Some regulatory relief for credit unions is included in Senate legislation that will soon face action by that body, after Senate Majority Leader Mitch McConnell (R-Ky.) filed for cloture on Thursday. The bill, S.2155, includes provisions giving credit unions more flexibility in business lending and Home Mortgage Disclosure Act (HMDA) disclosure requirements. The bill would (among other things):

Exempt one-to-four unit, non-owner occupied residential loans from a credit union’s member business loan (MBL) cap. The provision would treat the credit union loans similar to those made by banks.

Exempt depository institutions that have originated fewer than 500 open-end lines of credit and closed-end mortgages in the previous two years from certain Home Mortgage Disclosure (HMDA) reporting and recordkeeping requirements.

BILLS ON TRID IMPROVEMENT, RISK CAPITAL RESTRICTIONS CLEAR HOUSE

Two bills – one aimed at calculations under home loan disclosures, the other at risk capital requirements -- were passed by the House this week, and now head for the Senate. Among the details:

TRID Improvement Act of 2017 (H.R. 5078): Incorporating H.R. 3978, it amends the Real Estate Settlement Procedures Act of 1974 (RESPA), and the “Know Before You Owe” requirements under Truth in Lending-RESPA integrated disclosures (TRID) to require the CFPB to allow for the calculation of the discounted rate that title insurance companies may provide to consumers when they purchase a “lenders and owners” title insurance policy simultaneously.

A bill to place requirements on operational risk capital requirements for banking organizations established by an appropriate federal banking agency (H.R. 4296): Prohibits the establishment of operational risk capital requirements for banking organizations (including credit unions) unless they are sensitive to, and based on, an organization’s current activities, businesses or exposures; are determined by a forward-looking assessment of an organization’s potential losses and not based solely on its historic losses; and allow for adjustments based on qualifying operational “risk mitigants.”

Both bills were passed overwhelmingly, the former on a voice vote, the latter on a vote of 245 - 169.

CFPB ISSUES RFI 6: ‘USEFULNESS’ OF CONSUMER COMPLAINT REPORTS

“Usefulness” of complaint reporting and analysis, and specific suggestions for best practices for doing so, are the subjects of the sixth and latest “request for information” (RFI) Thursday by the CFPB. The most recent in what the bureau has said will total 12 RFIs calls for a comment period of 90 days; the agency expects the comment period to open March 7 (the publication of the notice in the Federal Register).

CFPB began issuing the RFIs six weeks ago in an effort to gather “evidence” that the agency is “fulfilling its proper and appropriate functions to best protect consumers.” The program was announced by CFPB Acting Director Mick Mulvaney seven weeks ago.

In its public notice about the information request, CFPB stated that it seeks public input about potential changes to its public reporting practices of consumer complaint information, and to consider whether any changes to the practices would be appropriate.

However, the bureau stated, it will issue an additional RFI on consumer inquiries and related process activities (the last in the series, in about six weeks). The difference between that RFI from the one issued Thursday, CFPB said, is that the most recent request “seeks feedback on all aspects of its consumer complaint reporting and publication practices; the Bureau is not seeking comment in this RFI on consumer inquiries and related process activities.”

Specifically, the bureau said it wants input about the usefulness to external stakeholders of complaint reporting and analysis. Under suggestions or best practices for complaint reporting, CFPB said that includes those related to its partial objective to “ensure that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”

SUMMARIES OF RFIS LIST DUE DATES, KEY POINTS TO CONSIDER

If you’ve been following the CFPB’s release of “requests for information,” you know that six have been released so far – including that released this week -- each with a request for comments. But how to keep up with all of that information, in order to formulate comments (not to mention keep track of the comments-due dates)? NASCUS has the tool for you: Our summaries of the RFIs – including due dates for comments, quick reference to the comments the consumer bureau seeks, and other relevant details, all in a concise format. To date, we’ve summarized the first four RFIs; eight more are on the way (as CFPB pushes out all 12 RFIs, likely concluding in mid-April.)

FREE WEBINAR OFFERS INSIGHTS TO PREVENTING HUMAN TRAFFICKING

Credit unions and other financial institutions can be a frontline defense in prevention of human trafficking, and can learn how to do so in a free webinar scheduled for March 20, available to NASCUS members. Featuring Timea Nagy, a survivor of human trafficking (and a recent speaker at the NASCUS/CUNA Bank Secrecy Act Conference), the webinar begins at noon ET. The webinar covers subjects including: characteristics of human trafficking from a survivor's point of view; identification of the various types of human trafficking and the related impact on its victims; detection strategies for human trafficking through financial transactions and other red flags; successfully managing or reporting a potential human trafficking incidence. Register before March 10 and receive a free copy of the Human Trafficking Detection for Financial Institutions guide.